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Friday, October 31, 2008

Daily Call - Oct 31 2008


As we re-open today to close for the week, punters are likely to feel left out of the post Diwali party the world had. The Asian indices had sizzled on Wednesday and Thursday but our derivatives settlement prevented the punters from letting their hair down. Just to update you, the US Fed cut rates by 0.5% on Wednesday and the first reading of the US Q3 GDP came in at a negative 0.3% on Thursday. This was better than feared 0.5% de-growth. In a nutshell, the US markets have gained 115 points in the last two trading sessions.


Our view is that drop in consumer spending in the US last quarter, the sharpest in 28 years, is an indication of things to come and the US GDP could de-grow by around 2.8%. A reduction in interest rates does not address that issue at all, not because it can’t theoretically but because it actually hasn’t. Rate reductions in Asia, lower inflation for us at 10.68%, has raised hopes of rate cuts and relaxation of the CRR too. But if the RBI blinks now after staring the market down on October 24, it will sharply reduce the respect Dr.Subbarao has earned by stepping into the large shoes of Dr.Reddy. Our markets would see some recovery, led by the banks, which can then be used to lighten commitments. We are beginning the new settlement with lowest OI since September 2006. A sure indication of the lost risk appetite of Dalal Street punters.